Nike Case - 1085 Words

BACKGROUND Kimi Ford, a portfolio manager of a large mutual fund management firm, is looking into the viability of investing in the stocks of Nike for the fund that she manages. Ford should base her decision on data on the company which were disclosed in the 2001 fiscal reports. While Nike management addressed several issues that are causing the decrease in market sales and prices of stocks, management presented its plans to improve and perform better. Third party sources also gave their opinions on whether the stock was a sound investment. PROBLEMS: 1. What is the WACC and why is it important to estimate a firms cost of capital? Do you agree with Joanna Cohens WACC calculation? Why is it important to estimate a firms†¦show more content†¦Since it assumes the earnings will continue indefinitely, the value is computed simply by dividing the earnings by a capitalization factor expressed as a percentage. For example, a company whose normal earnings are $1,000 and for which a capitalization rate of 20% is chosen would have a value of $5,000 ($1,000 à · .2). One of the most problematic aspects of this process is determining an appropriate capitalization rate. This is accomplished either by reference to rates implicit in the value the marketplace gives to comparable publicly traded companies or through a process known as the buildup method. In the buildup method the valuator begins with the risk free rate and adds subjectively to that rate an amount appropriate for the investment risk of the firm being valued. Once an appropriate rate has been determined, the value of the firm is calculated rather quite simply by dividing the adjusted earnings by the capitalization rate. Computation for Nikes Cost of Capital Using the WACC, the following computation can be deducted: WACC = (% of equity x cost of equity) + (% of debt x cost of debt) x (1-CorpShow MoreRelatedNike Business Case Study1380 Words   |  6 PagesEven though every company should act ethically correct, not everyone does and Nike is a great example of that. Nike is a company who grew fast and looked for a cheap way to manufacture their products, by manufacturing overseas. Nike had a strong start but when people started protesting the company and their name was being dragged, they acted fast to recover to be the huge business they are today. Background The company Nike was founded in 1962 by Stanford University business graduate, Philip KnightRead MoreNike Case Study Analysis1294 Words   |  6 Pages â€Æ' Introduction Nike, a multinational company is one of the top and well known athletic footwear and apparel producers in the world. 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